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- Title
Firms and Local Governments: Relationship Building during Political Turnovers.
- Authors
Fang, Hanming; Li, Zhe; Xu, Nianhang; Yan, Hongjun
- Abstract
We study how firms build relations with local governments in emerging markets without established rules of political lobbying. We document that following a turnover of the Party Secretary or mayor of a city in China, firms (especially privately owned enterprises, POEs hereafter) headquartered in that city significantly increase their "perk spending," for example, expenses for travel and entertainment among others. Both the instrumental-variable-based results and heterogeneity analysis are consistent with the interpretation that the perk spending is used to build relations with local governments. In addition, we find that local political turnover in a city tends to be followed by changes of the Chairmen or the CEOs of state-owned enterprises that are controlled by the local government. We also discuss and rule out several alternative explanations for the above findings.
- Subjects
CHINA; LOCAL government; TRAVEL costs; GOVERNMENT business enterprises
- Publication
Review of Finance, 2023, Vol 27, Issue 2, p739
- ISSN
1572-3097
- Publication type
Article
- DOI
10.1093/rof/rfac038